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2018 Outlook for East Coast Cannabusiness

January 24, 2018SC&H Group

The following post shares a roundup of details surrounding the state of the states for east coast Cannabusinesses. SC&H Group is keeping a close eye on updates and how any changes may shift your business strategies. As you review if you have any questions we encourage you to reach out to your SC&H Group business advisor to discuss how these updates will affect your cannabusiness in 2018.

Department of Justice Updates

We started out the year with AG Sessions announcement, effectively rescinding the Cole Memo. However, most states seem to largely be ignoring it. And with FinCEN guidance unchanged, we are actually seeing more banks jump into the industry, potentially minimizing some of the cash issues for the industry. In fact, just 12 days after Sessions revoked the Cole Memo, 19 attorneys general co-signed a letter asking Congress to consider legislation that would open traditional banking resources to the marijuana industry (Connecticut, Maine, Maryland, Massachusetts, New York, Pennsylvania, Vermont and District of Columbia AGs all signed).

Here is where a few east coast medical states have come out on the announcement from the Department of Justice:

Maryland: Commissioner Joy Strand of the Maryland Medical Cannabis Commission stated at an industry event on January 11, 2018 that the Commission remains committed to building a robust program. US Attorney Brian Frosh called the abrupt change in policy “wrong-headed” and “disruptive.”

Pennsylvania: Auditor General Eugene DePasquale said he was “outraged” by the move, calling it “outdated,” while Governor Wolf stated: “The Trump Administration must put patients’ rights first, and I will not stand for backwards attacks on the progress made in Pennsylvania to provide medicine to those in need.”

In some adult-use states like Massachusetts, set to launch their recreational program on June 1, 2018, response has been a little more complicated. A spokesperson for Governor Charlie Baker stated that the Governor “fully supports the will of the voters.” Whereas the US Attorney for MA, Andrew Lelling issued a harsher statement, but is playing his cards close to the chest.

In general, industry insiders seem less concerned about prosecution, but are more concerned about the effect on funding, worrying that institutional investors and high-net worth individuals that were interested in the industry may now shift their strategies to less-risky investments.

Financial Issues

We have been keeping a close watch on the tax updates and have analyzed how the Tax Cuts and Jobs Act effects cannabisbusinesses. The following is a breakdown of some potential areas to keep an eye on for your cannabusiness:

New corporate and individual tax brackets: Much was made of the reduced corporate tax rate to 21%. Many cannabusinesses have structured as complex pass through entities may want to consider a more tax efficient entity structure.

Accounting method: many businesses are working now to get their books and chart of accounts set up properly. There are changes, many of the favorable, to accounting method rules in the TCJA.

Depreciation of capital assets: the TCJA effectively lowered the cost of acquiring capital assets by making changes to the rules for bonus depreciation. Could be helpful for cannabusiness purchasing items like production or testing equipment.

As you keep an eye on how the new tax law could affect your business, feel free to Contact the SC&H Group Tax Team with questions as you navigate next steps.

State Specific Updates

In Maryland, the first medical cannabis hit dispensary shelves at the end of 2017, and more dispensaries are opening every week. The MD General Assembly is considering legislation to de-couple from federal tax code on 280E, giving the industry a much needed tax break at the state level.

As of January 2018, Pennsylvania has approved 9 grower/processors. The first dispensary was approved early in the month.

With Vermont recently becoming the 9th adult-use state in the country, New Jersey might not be far behind. State Senator Nicholas Scutari (D) has introduced a measure legalizing recreational marijuana, and newly sworn in governor Phil Murphy reiterated his commitment to a path to legalization in his inauguration speech.

Despite Governor Cuomo’s stated position from 2016 that he was opposed to legalization in New York, he is calling to form a state commission to “get the facts” and evaluate New York’s position, sharing a border with potentially three adult-use states: Vermont, New Jersey and Massachusetts.

In closing, SC&H has also heard from a number of businesses that their cloud accounting software provider is canceling their account. If you are using any cloud services, make sure to review the contract for clauses allowing the vendor to cancel clients for being affiliated with illegal industries.

Despite a slight setback from the Department of Justice, 2018 is already looking like another eventful year for cannabusinesses on the east coast. If you have any questions please feel free to Contact Us.